DirecTV's picture quality may beat cable; its legal arguments don't

Time Warner Cable, Inc. v. DirecTV, Inc., -- F.Supp.2d --, 2007 WL 412498 (S.D.N.Y.)

TWC is the second-largest cable provider in the United States, and the market leader in many places, such as in the areas of New York City in which TWC is the franchisee. TWC offers analog and digital cable, whereas DirecTV is 100% digital. Both broadcast only a limited number of channels in HD format, which requires customers to have HDTV equipment. Neither TWC nor DirecTV set the screen resolution for HDTV programs, but only pass them on to consumers; thus, both TWC and DirecTV have the same picture quality in their HD programming. For non-HD service, analog cable is somewhat inferior to digital cable.

TWC complained about various DirecTV TV spots that made claims such as “You’re just not going to get the best picture out of some fancy big screen TV without DIRECTV” (according to Jessica Simpson) and “settling for cable would be illogical” (according to William Shatner as James T. Kirk). The narrator concluded, “for picture quality that beats cable, you’ve got to get DIRECTV.” Despite modifications to the ads (such as “for an HD picture that can’t be beat, get DIRECTV” as the closing line), TWC was not satisfied and filed suit, challenging the TV ads as well as certain internet banner ads. Those ads show an image divided into two screens, one half clear and labeled “DIRECTV” and the other half an “extremely blurry, highly pixellated and indistinct image” labeled “OTHER TV.” The web ads later suggest that “[i]f you're hooking up your high-definition TV to basic cable, you’re not getting the best picture on every channel. … [f]ind out why DIRECTV's picture beats cable.”

As reported a while back by the Trademark Blog, the court found the ads literally false because, in context, the claims had to mean that DirecTV’s HD was superior to cable’s HD. Because digital HD signals behave the same on both parties’ systems, this is literally false, even though DirecTV might beat analog cable. The case is an application of the rule that ad claims must be assessed in context. The court rejected DirecTV’s dissection of the ad, which posited that “the best picture” and similar statements referred to the overall viewing experience, not the HD viewing experience. Context, as assessed by a court, can convert potential or implicit falsity into literal falsity – a way in which the standard doctrine that only literally false claims can be enjoined without evidence of consumer deception is not entirely accurate.

Likewise, the internet ads were literally false because of the visual exaggeration, which vastly overstated the differences between cable and DirecTV. Under Second Circuit precedent, visual exaggeration can be literally false, despite DirecTV’s claim that it was engaged in mere puffery. It is noteworthy that the court relied on consumers’ lack of experience with HD: Because the technology is new, many people have no understanding of how it interacts with the various systems, and thus “consumers unfamiliar with HD equipment could be led to believe that using an HD television set with an analog cable feed might result in the sort of distorted images showcased in DIRECTV’s Internet Advertisements, especially since those advertisements make reference to ‘basic cable.’” Reasonable consumers might lack the background knowledge necessary to identify the web ads as puffery.

TWC also showed irreparable harm by showing its marketplace dominance in the relevant areas. Explicit comparative advertising raises a presumption of irreparable harm; in a highly concentrated market, the dominant competitor need not be named to suffer the same harm and receive the same presumption.

DirecTV made the increasingly popular argument that TWC’s proposed injunction was unconstitutionally overbroad in that it would suppress non-false commercial speech. The court modifed TWC’s proposed order, but did enjoin DirecTV from disparaging the visual or audio quality of TWC or cable HDTV programming. DirecTV was allowed to state that overall picture quality is superior to that of TWC’s mix of digital and analog. The geographic scope of the injunction was also limited to areas in which TWC provides cable service, though I doubt it makes sense for DirecTV to run two sets of ads (not to mention that the cable market leader in each market could presumably achieve the same result against DirecTV).